United Utilities Group PLC (LSE:UU.), a water utilities company based in United Kingdom, saw significant share price volatility over the past couple of months on the LSE, rising to the highs of £8.63 and falling to the lows of £7.79. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether United Utilities Group’s current trading price of £8.18 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at United Utilities Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for United Utilities Group
Is United Utilities Group still cheap?
According to my valuation model, United Utilities Group seems to be fairly priced at around 8% above my intrinsic value, which means if you buy United Utilities Group today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth £7.59, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, United Utilities Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from United Utilities Group?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -11.22% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for United Utilities Group. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? United Utilities Group seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.